H&R Block shares now trade at 12 times our fiscal year 2004 forecast (a five to seven P/E multiple on the mortgage business suggests that the tax unit is trading at 13x-15x), a level that appears reasonable, especially given the recent move generally seen in mortgage finance stocks.

Further, H&R Block shares have fallen roughly 16% since April 2nd (22% vs. the S&P 500 & more than 30% versus our coverage universe) and we expect news flow driven pressure to subside now that tax season is over.

Lastly, on client growth, the backdrop is somewhat more encouraging with the IRS now showing a 2.8% drop in returns received through April 25th (it was down just 0.5% through April 11th).

-- Michael S. Hodes

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